Asked by Shaan Sanghera on Jul 12, 2024
Verified
Which one of the following is an example of diversifiable risk?
A) The price of electricity just increased.
B) The employees of Textile, Inc. just voted to go on strike.
C) The government just imposed new safety standards for all employees.
D) The government just lowered corporate income tax rates.
E) The Workers Compensation Premiums just increased nationwide.
Diversifiable Risk
A type of risk that can be reduced or eliminated from a portfolio through the process of diversification, as it's not correlated to market risk.
Employees
Individuals who are hired by a company or organization to perform work in exchange for compensation.
- Differentiate among systematic risk, unsystematic risk, and total risk, and elucidate their significance in the management of portfolios.
- Comprehend the basic principles of diversification and how it influences portfolio risk.
Verified Answer
RV
Ricardo VidalJul 14, 2024
Final Answer :
B
Explanation :
Diversifiable risk, also known as unsystematic risk, is specific to a company or industry. The scenario where employees of Textile, Inc. voted to go on strike is an example of diversifiable risk because it affects only the specific company and not the entire market or economy.
Learning Objectives
- Differentiate among systematic risk, unsystematic risk, and total risk, and elucidate their significance in the management of portfolios.
- Comprehend the basic principles of diversification and how it influences portfolio risk.